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Auditing and reporting in Europe: an analysis using country-level data

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Purpose - This paper aims to investigate the determinants of the strength of auditing and reporting standards (SARS) in 41 European countries. It posits that there are a number of country-level determinants for the SARS and these determinants are grouped into four main categories: legal framework, corporate governance, market and higher education. This study aims to expand the domain of auditing and reporting by using country-level data than is usually found in the auditing literature. Design/methodology/approach - Data were accessed from the World Economic Forum (WEF) Report (2009), World Bank Reports on Observation of Standards and Codes (ROSC) and the International Federation of Accountants (IFAC). The ROSC was used to synthesise the status of auditing in the 41 countries, whereas the IFAC report was used to determine the adoption of international standards on auditing. Data on SARS and its determinants were gathered from the WEF Report to empirically examine the validity of the hypotheses. The ranks of SARS were regressed on the ranks of its determinants. Findings - This paper provides additional empirical evidence on SARS in Europe. It suggests that, in addition to extant literature, judicial independence and efficiency of the legal framework, ethical behaviour of firms, efficacy of corporate boards, strengths of the stock market and extent of staff training in the European countries impact on its SARS. Research limitations/implications - Because the ROSC are not available for all the European countries, this study could not comment on the status of auditing for all the 41 countries. Second, had the countries been grouped into developed, emerging and developing, the determinants of SARS could be different. Practical implications - This paper emphasises the importance of the efficiency of legal framework, corporate governance and the training of staff to maintain a reasonable SARS. Originality/value - This study fills the research gap regarding the absence of an empirical cross-country study on the determinants of the SARS in Europe.